The biggest fraud in economics is ... economics?

What’s the point of having an economy, asks Bill Bonner? It makes no sense to waste trillions of dollars’ worth of resources just to “protect the economy,” he says. The whole point of an economy is to create more stuff, not to waste it.

Nobel Prize winning economist Paul Krugman speaks during an interview in New York, in this May 2012 file photo. the Daily Reckoning's Bill Bonner is not a fan of Krugman's economic analysis, or that of most economists, really.

Forget ‘peak oil.’ Or so they say. It has fracked its way to energy self-sufficiency.

Porter Stansberry:

… there are roughly 20 major shale oil plays in the US. The largest five of these new reservoirs have more than 20 billion barrels of recoverable oil… meaning that each of these new fields is not only the largest in US history (by a wide margin), but that each of them, individually, would more than double the proven reserves of domestic oil…

That is why America is on track to be the world’s leading producer of oil within the next five or six years… and why the most knowledgeable oil analysts are predicting a new all-time high of American oil production by 2017. In fact, we’ve already become a net energy exporter for the first time since 1949.

Of course, the numbers never really made any sense. Neither did the logic of it. It would have been a whole lot cheaper just to buy the oil on the open market. Trillions cheaper.

But money isn’t everything. The US needs to guarantee access to oil…or its whole economy might be brought to its knees.

Which is probably a good place to introduce a new idea:

The biggest fraud in economics is economics itself.

What’s the point of having an economy? It is so that people will get the stuff they need and want. The more efficient the economy, the more stuff people get with the least effort and expense of resources.

It makes no sense to waste trillions of dollars’ worth of resources just to “protect the economy.” The whole point of an economy is to create more stuff…not to waste it. You might just as well try to protect your health by committing suicide.

Most economists are fools or knaves. The knaves want to get prestigious jobs and Nobel prizes by offering crackpot advice. The fools think it will work.

A few months ago, they were concerned with peaks. There was a peak in oil production. There was a peak in food production. There was a peak in available water coming. Then, a peak in peaks must have been hit.

Now there is a peak in valleys. All of a sudden, the peaks are far away. Commodity prices are falling, not rising. Deflation is economists’ worry, not inflation. Deflation is an impediment to growth; everyone believes it.

The European debate is largely a dispute over which fraudulent solution will cause ‘growth.’ The austerity crowd believes it has to clamp down on government spending. This will give investors confidence in government bonds. The feds will be able to borrow again. The economy will grow. All will be well.

The stimulus crowd targets growth directly. It wants the feds to spend…creating jobs, incomes, spending and so forth.

“At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending.”

Krugman says the real problem is a lack of demand. People just don’t want to spend their money. This is something that needs to be fixed!

Why? Why not let people decide for themselves when they want to spend and when they want to save? Why let the government do for them what they do not want done? Krugman doesn’t bother to think about it.

He is worried only about growth. He is afraid that the economy will collapse completely before austerity measures lead to growth. The austerity group worries that government-led ‘growth’ will blow up the economy before it has a chance to turn into real, private sector growth.

Neither side doubts that growth is the key. Almost everybody agrees: we have to pursue growth. “The Hero,” Ben Bernanke, does it by printing money. Congress and the administration do it by running trillion-dollar deficits.

Nobody doubts that ‘growth’ is the key to progress, happiness, and maybe even Heaven. But there’s the foundation of the great flim-flam right there.

Why do economists think ‘growth’ is such hot stuff? Because they can measure it…

Economists can measure GDP. They can tell when it goes up…or when it goes down. Generally, more is better…because it means the economy is creating more stuff. So, economists tailor their policy recommendations…their theories…and their editorial page blah-blahs to the goal of stimulating growth.

But is growth a good thing? Is it the same as progress and prosperity? Is more stuff what the world really needs?

Just 5 years ago, TIME magazine thought the US needed more stuff…in the form of houses. Seventy years ago, the US needed more stuff…in the form of tanks and fighter planes.

Forty years ago, US economists — notably Samuelson — were convinced that the Soviet economy would soon be larger than the US economy. Why? It could produce more stuff. They had charts to show how stuff production in the Soviet Union was increasing…and how it would surpass the US in just a few years.

And what happened? It didn’t matter. The stuff was worthless.

More tomorrow.

Regards,

Bill Bonner for The Daily Reckoning

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